Financial Information

The process of business loan refinancing has become more relevant to small businesses which are trying to deal with reduced sales and cash flow. In some situations business owners are being forced to refinance existing loans by current lenders, and in other cases they are attempting to secure additional cash. Difficulties for refinancing are now occurring frequently with short term business financing and long term commercial real estate loans.

Some commercial finance situations lend themselves better to refinancing than others. There are two scenarios that are particularly difficult to refinance, one involving SBA loans and the other business opportunity financing. The need to replace existing business lines of credit with new financing arrangements is now emerging as equally difficult.

The need to revise commercial real estate loans in which commercial property serves as collateral is a more traditional example of refinancing. Some borrowers are finding that they need to refinance simply to replace their existing commercial mortgage because many banks have decided to stop making commercial loans. Due to a slow economic pace, a number of small business owners are exploring the possibility of refinancing in order to get cash from existing equity to support their business financing needs. In either case, business borrowers are increasingly discovering that commercial refinancing is not as straightforward as it might have been in the past. In particular, there are two problem areas that will often be hard to overcome.

One factor proving to be a refinancing obstacle is business valuation. Declining sales levels lead to reduced commercial property values because commercial appraisals often derive business value from the income approach. The lack of recent profits for many businesses is another key problem impacting business loan refinancing. Because some financial uncertainties have reduced sales for many businesses, a high number of merchants are showing losses on recent financial statements and tax returns. Because lenders look at cash flow to see if it is sufficient to cover debt payments, recent losses are likely to be a significant difficulty when attempting to refinance commercial mortgages and other commercial loans.

Borrowers should find themselves in better shape if they realize in advance that there might not be the usual choices for business refinancing. It is likely that most businesses will need to evaluate and consider both new commercial lending sources and new business financing programs before the end of their current efforts to refinance business debt.